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With the debt markets tightening in response to rising interest
\nrates and economic volatility, Ropes & Gray partners Michael
\nLee, David Hutchins, Patrick Dorime and I have examined how private
\nequity sponsors are finding alternative ways to secure debt to
\nfinance deals.<\/p>\n
High yield bond and leveraged loan issuances for U.S. buyouts
\nand M&A are increasingly hard to come by, making it more
\ndifficult for PE sponsors to fund deals on terms and leverage
\nlevels available in 2021. This contraction is largely due to
\nvolatile stock markets and climbing inflation, which also has
\ncontributed to a spike in borrowing costs.<\/p>\n
While these forces have deterred many PE borrowers from seeking
\nout new deals, some sponsors are looking for creative ways to
\nfinance deals in both the mid- and mega-markets.<\/p>\n
Private debt.<\/strong> Backed by US$1.2 trillion of dry
The contraction of the syndicated loan market has been a boon
Niche products and strategies.<\/strong> In addition to
While debt markets will likely remain tight in the near term, PE
For the full article, please click here<\/a>.<\/p>\n The content of this article is intended to provide a general
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\npowder (at the end of 2021), private debt funds have been a
\nreliable source of funding during this period of uncertainty.
\nWorking with private debt managers has enabled sponsors to reduce
\nsyndication risk and ensure certainty of execution.<\/p>\n
\nfor direct lenders, which are able to win more deals at attractive
\nprices while being selective about their deal commitments. In turn,
\nsponsors are less able to rely on one or two providers to
\nunderwrite a deal\u2014rather, they are now having to assemble a
\nclub of direct lenders for any meaningful commitment.<\/p>\n
\ndirect lenders, sponsors are considering more and more niche
\nproducts and strategies to finance deals, including term loan A
\ncommitments and annual recurring revenue loans. Sponsors are also
\nusing preferred equity, payment-in-kind loans and other junior
\ncapital options, as well as seller debt. Some sponsors are
\nproviding equity underwrites to finance deals up front and then
\nreturning to market post-deal to raise debt financing. Niche debt
\nsources are also playing an increasingly important role in
\nrefinancing existing portfolio company debt structures.<\/p>\n
\nsponsors will have to continue to find creative ways to put
\ntogether financing to get deals done. By adapting capital
\nstructures, exploring alternative funding sources and relying on
\nkey relationships, PE will have options on the table to secure
\nacquisition financing.<\/p>\n
\nguide to the subject matter. Specialist advice should be sought
\nabout your specific circumstances.<\/em><\/p>\n<\/div>\n<\/div>\n